Thursday, April 30, 2009

Market fundamentalism is the belief that the optimum common interest is only achievable through a free market equilibrium created by the effect of countless individual decisions of all market participants each freely seeking to maximize his/her own private gain and that such market equilibrium should not be distorted by any collective measures in the name of the common good. It is summed up by Margaret Thatcher's infamous declaration that there is no such thing as society.

The fact is that in a world of sovereign states, all economies are command economies. The United States, the Mecca of market fundamentalism, commands its alleged market economy in the name of national security. While the US tirelessly advocates free trade, foreign trade is a declared instrument of US foreign policy. President George W Bush declares that "open trade is a moral imperative" to spread democracy around the world. The White House Council of Economic Advisers is organizationally subservient to the National Security Council. National-security concerns dictate trade policies the US adopts for its economic relations with different foreign countries.

World trade today is free only to the extent of being free to support US unilateralism. For the US imperium, the line between foreign policy and domestic policy is disappearing to make room for global policy. The sole superpower views the world as its oyster, and global trade is to replace foreign trade in a global economy the rules for which are set by a World Trade Organization dominated by the sole superpower.

Market fundamentalism as the term is generally used in macroeconomics is a key component of neoliberal globalization of trade, in the same sense that the British, through Adam Smith, promoted "free trade" in the 18th-19th centuries. The difference between Smithian free trade and today's neoliberal market fundamentalism is that British free trade was limited to the sphere of political influence within the British Empire, whereas neoliberal market fundamentalism aims to be truly global. The Washington Consensus is a conditionality for inclusion into global market fundamentalism through intervention on national sovereignty over monetary and fiscal policies.

Eisuke Sakakibara, Japan's former vice-minister for international finance, widely known as Mr. Yen, in a speech titled "The End of Market Fundamentalism" before the Foreign Correspondent's Club in Tokyo on January 22, 1999, presented a coherent and wide-ranging critique of global macro-orthodoxy. His view, that each national economic system must conform to agreed international trade rules and regulations but need not assimilate the domestic rules and regulations of another country, is heresy to US-led, one-size-fits-all globalization. This view was prescient in view of the globalized market conditions that had led to the current financial crisis and is at variance with that put forth in the 2009 London G20 summit.

Market fundamentalism helps no economy. It helps only selected segments in economies that subscribe to it. Since the segment most helped by market economy is in political control of the US polity, market fundamentalism is billed as being the appropriate doctrine for the US and hence the world as well. Dollar hegemony is also detrimental to the US economy, as it is only good for the global dollar economy of which the US economy is but one component, albeit a key major one. Through globalization and the growth of euro-dollars (the name given to all offshore dollars everywhere and has no direct relation to the euro or the EU), the dollar economy is increasingly detached from the US economy. What is good for the dollar economy is not necessarily good for the US economy. Economic nationalists in the US are beginning to understand the threat of dollar hegemony to the US economy itself.

Wednesday, April 29, 2009

The Lithuanian economy shrank by 12.6% in the first quarter of 2009 compared with the same period last year, the country's statistics office has said.

Falling industrial output, lower demand for exported goods and a lack of credit were blamed for the decline.

It is the country's largest contraction in gross domestic product (GDP) since it started official records in 1995.

Lithuania, which joined the EU in 2004, has forecast a contraction in GDP of 10.5% for the whole of this year.

But on a quarter-to-quarter basis, the decline was 9.5%.

"Our economy is falling into deep hole, and I see no positive signs in the nearest future," said Gitanas Nauseda, an analyst at SEB Bank in Vilnius.

The country's Prime Minister, Andrius Kubilius, said, "We hope that next year we shall have a much lower GDP decrease or even stability in GDP, and then we are forecasting that we should return back to GDP growth in 2011."

The contraction in the Lithuanian economy is believed to be the largest so far of any country affected by the global recession, and marks a sharp reversal of fortunes for this small Baltic state.

Baltic fears

The Lithuanian economy grew by 8.9% in 2007, which was a record increase for the country, but last year growth had slowed to 3%.

But falls in demand for construction, the retail industry and textile sectors have contributed to the turnaround, according to the Lithuanian office for statistics.

Analysts say the size of the decline suggests the economies of the other two Baltic states in the EU, Latvia and Estonia, are also poised to contract by more than 10%.

Estonia's central bank has already forecast that the economy there will shrink by 12% this year.

Meanwhile Latvia's Finance Ministry has predicted the country's GDP will contract by 15% in 2009.

According to the World Bank, Eastern Europe is likely to have been the hardest hit by the financial meltdown of any region.

The IMF is expecting to have to lend billions to help bail-out its damaged economies. Latvia has already sought a rescue package.

On the Roots of the Current Economic Crisis and Some Proposed Solutions

by Andrew Kliman, Author of Reclaiming Marx’s “Capital“: A refutation of the myth of inconsistency

Some prominent radical economists and non-economists have denied that Marx’s theory of the tendential fall in the rate of profit helps to explain the current economic crisis. I want to begin by explaining why they dismiss this theory, and then argue, to the contrary, that the current crisis does have a lot to do with the tendential fall in the rate of profit as analyzed by Marx.

In the 1970s, as an outgrowth of the New Left, and because of the global economic crisis of that decade, there was a renewal of scholarship that attempted to reclaim Marx’s value theory and theories grounded in his value theory, such as his theory of the tendential fall in the rate of profit and his theory of capitalist economic crisis. But these efforts met with a strong reaction, in the form of a resurgent myth that Marx’s value theory and law of the tendential fall in the rate of profit had been proved internally inconsistent. It needs to be stressed that the resurgence of this myth of inconsistency came from within the Left; almost all of the critics of Marx’s value theory in this period, and ever since, have been Marxist or Sraffian economists.

Why does the myth of inconsistency matter? Well, internally inconsistent arguments simply cannot be correct, so a theory that is founded upon them cannot possibly explain events correctly. It may seem to do so; it may be intuitively plausible, even convincing, and it may be consistent with all of the available evidence. Nonetheless, the fact remains that internally inconsistent arguments are always wrong, even if they accidentally happen to arrive at correct conclusions in a particular case. A theory founded upon them must therefore be rejected or corrected. For instance, in an influential 1977 work, Marx After Sraffa, Ian Steedman, a leading Sraffian economist, argued, “value magnitudes are, at best, redundant in the determination of the rate of profit (and prices of production)” (p. 202). “Marx’s value reasoning––hardly a peripheral aspect of his work––must therefore be abandoned, in the interest of developing a coherent materialist theory of capitalism” (p. 207).

One key aspect of the “internal inconsistency” critique was the so-called “Okishio theorem.” In 1961, the Japanese Marxist economist Nobuo Okishio claimed to prove that technical innovations introduced by profit-maximizing capitalists can never cause the rate of profit to fall. Thus Marx’s diametrically opposed conclusion was based on internally inconsistent reasoning. Once it was discovered during the debates of the 1970s, Okishio’s theorem caught on quickly.

Owing to the supposed mathematical rigor of their arguments, and undoubtedly owing to the changed political climate as well, Marx’s critics won these debates hands down. By the start of the 1980s, the myth that Marx’s theories of value and the falling rate of profit have been proven internally inconsistent, and therefore false, was almost unanimously accepted as fact.

This myth has since been disproved by proponents of what is now known as the temporal single-system interpretation of Marx’s value theory. I am proud to have contributed to this effort and I’ve tried to make the issues and the refutation of the myth accessible to a general audience, i.e., to explain things with minimal math and in as simple a way as I can, in Reclaiming Marx’s “Capital”: A refutation of the myth of inconsistency, which came out in 2007.

Nonetheless, the myth of inconsistency largely persists, and it affects the debate over the causes of the current crisis. As I said at the start, some prominent radical economists and non-economists have been denying that Marx’s theory of the tendential fall in the rate of profit helps to explain the current economic crisis. As we’ll see, the reason they dismiss his theory has a lot to do with the Okishio theorem. But first let me report what they say.

Writing in the International Socialism journal last July, Fred Moseley, a prominent Marxist economist, wrote, “there has been a substantial recovery of the rate of profit in the US economy…. Three decades of stagnant real wages and increasing exploitation have substantially restored the rate of profit, at the expense of workers. This important fact should be acknowledged. … The main problem in the current crisis is the financial sector. … The best theorist of the capitalist financial system is Hyman Minsky, not Karl Marx. The current crisis is more of a Minsky crisis than a Marx crisis.” [Moseley, “Some notes on the crunch and the crisis,” http://www.isj.org.uk/index.php4?id=463&issue=119]

Similarly, an attendee at last November’s Hisotrical Materialism conference recently reported that another prominent Marxist economist, “Gérard Duménil, … mock[ed] the idea that ‘the profit rate had to be behind the crisis’. . . . [H]e thought the crisis was of financial origin and that the profit rate had been relatively steady and had little to do with it.” The same report states that Costas Lapavitsas, another well-known Marxist economist, was “also dismissive of the profit-rate line.” [Mike Beggs, Feb. 16, 2009, http://mailman.lbo-talk.org/pipermail/lbo-talk/Week-of-Mon-20090216/002355.html]

Now the main reason they dismiss the notion that Marx’s law of the falling tendency of the rate of profit helps account for the current crisis is that the so-called “rate of profit” that they are talking about has indeed recovered substantially since the early 1980s. But their so-called rate of profit is Okishio’s rate of profit, the measure he used to try to prove Marx internally inconsistent, not the rate of profit that Marx talked about when he said that technological progress tends to cause it to fall.

Okishio’s rate of profit is essentially a physical measure, not a monetary or value measure, and so it actually isn’t a rate of profit in any normal sense. It has little to do with what capitalists in the real-world mean by “rate of profit,” namely their money profit as a percentage of the actual sum of money they’ve invested. But since Okishio supposedly disproved Marx’s theory, and since Marx’s value theory was supposedly proved to be internally inconsistent, the Marxist economists have chucked his value-based rate of profit into the dustbin of history. During the last three decades, when they’ve discuss the tendency of the rate of profit, they’ve been discussing the tendency of Okishio’s physical measure.

This substitution matters a lot when the question is whether the rate of profit has recovered from the fall it underwent from the mid-1960s to the early 1980s.

As Figure 1 shows, the physical rate of profit rose by 37% from 1982 to 2001. (All of my data come from the U.S. government––the Bureau of Economic Analysis and the Bureau of Labor Statistics––and are obtainable online for free.)

But again, the physical rate of profit isn’t a rate of profit in any real sense, and the myth of Marx’s internal inconsistency has been refuted, so we can in good conscience return to an examination of the money rate of profit, measured on the basis of the actual sums of money invested, and labor, or value, rate of profit, which we see is very closely associated with the money rate. These two rates were no higher in 2001 than in 1982. They experienced only a cyclical rise, no long-term recovery.

Given that the rate of profit hasn’t recovered, perhaps Marx’s theory can help to explain the current economic crisis after all. I will now argue that it does help. In brief, my view is this: The rate of profit heads toward “the long-run rate of profit.” At the start of a new boom, the rate of profit is well above the long-run rate of profit, so it tends to fall over time. This situation persists unless there’s sufficient “destruction of capital.” Destruction of capital restores profitability, and thus ushers in a new boom. This is what happened in the Great Depression and World War II. But there was insufficient destruction of capital in the economic crises of the mid-1970s and early 1980s. Rather than allowing there to be a depression (and subsequent boom!), policy-makers have continually encouraged excessive expansion of debt. This artificially boosts profitability and economic growth, but in an unsustainable manner; it leads to repeated debt crises. The present crisis is the most serious and acute of these. Policy-makers are responding by again papering over bad debts with more debt, this time to an unprecedented degree.

My first theoretical point in the above sketch is that the rate of profit heads toward the long-run rate of profit. So what I’m calling the “long-run” rate of profit is the rate toward which the actually observed rate of profit tends in the long run, all else being equal. What is this long-run rate? According to Marx’s theory, all profit comes from workers’ labor. Thus the long-run rate of profit depends in part upon the rate of growth of employment. This is held down by labor-saving technical progress. The long-run rate also depends upon the share of profit or surplus-value that is reinvested.

There are two other factors determining the value of the long-run rate of profit: the relationship between profits and wages, and the rise in money prices above the real value of goods and services, which, according to Marx’s theory, is determined by labor-time. But just for the moment, let’s ignore these factors. In other words, let’s consider what the long-run rate of profit would be if the relationship between profits and wages were constant, and money prices didn’t rise above real values. (1)Over the last 61 years in the U.S., this long-run rate of profit, which I’m calling the long-run labor rate, as distinct from the long-run money rate of profit, has been trendless, a constant 4% on average.

My second point in the above theoretical sketch was that, at the start of a new boom, the rate of profit is well above the long-run rate of profit, so it tends to fall over time.

Money Rate of Profit, US Corporations, 1929-2007(Before-tax profits as % of historical cost of fixed assets)The next slide shows that the money rate of profit did in fact start off much higher in the boom that began after the Great Depression, and that it has tended to fall consistently since then.

A closer look at this graph reveals that there have been three distinct periods since the start of World War II. From 1941 through 1956, the rate of profit averaged 28%, falling to 20% in the 1957-1980 period, and falling further to 14% in the period from 1981 through 2004. What caused the fall?

Well, according to the theory presented above, there is the long-run labor rate of profit, 4%. Then there’s the actual labor rate of profit, which is what the money rate of profit would have been if money prices didn’t rise above real values. We see a clear tendency for the actual labor rate of profit to head toward the long-run labor rate, just as the theory suggests.

Then there’s the excess of the money rate over the actual labor rate. Prices have indeed consistently risen in relationship to the real values of goods and services, and this consistently boosts the money rate of profit over the labor rate. But the gap between the two rates has been roughly constant––in fact, it has fallen by several percentage points since the rate of inflation came down in the early 1980s. And since this gap is roughly constant, the fall of the labor rate of profit toward its long-run level has been accompanied by a fall, of basically the same extent, in the money rate of profit. These results match the theory to a greater degree than I expected before I began this analysis.

My next point of in the above theoretical sketch was that this tendency of the rate of profit to fall toward its long-run level persists unless there’s sufficient “destruction of capital.” This is a key concept of Marx’s theory of capitalist crisis. By “destruction of capital,” he meant not only the destruction of physical capital assets, but also, and especially, of the value of capital assets.

In an economic slump, machines and buildings lay idle, rust and deteriorate, so physical capital is destroyed. More importantly, debts go unpaid, asset prices fall, and other prices may also fall, so the value of physical as well as financial capital assets is destroyed. Yet as I noted earlier, the destruction of capital is also the key mechanism that leads to the next boom. For instance, if a business can generate $3 million in profit annually, but the value of the capital invested in the business is $100 million, its rate of profit is a mere 3%. But if the destruction of capital values enables new owners to acquire the business for only $10 million instead of $100 million, their rate of profit is a healthy 30%. That is a tremendous spur to a new boom.

Thus the post-war boom came about, I believe, as a result of a massive destruction of capital that occurred during the Great Depression and World War II. One measure of that boom is the rise in the rate of profit that we saw earlier, from –2% in 1932 to 30% in 1943.

At the start of the Great Depression, the destruction of capital was actually advocated by conservative economists. This was called “liquidationism.” According to Herbert Hoover, his Treasury Secretary, the financier Andrew Mellon, advocated it as well.

But in the 1970s and thereafter, policymakers in the U.S. and abroad have understandably been afraid of a repeat of the Great Depression. They have therefore repeatedly attempted to retard and prevent the destruction of capital. This has “contained” the problem, while also prolonging it. As a result, the economy has never fully recovered from the slump of the 1970s, certainly not in the way in which it recovered from the Great Depression. The failure of the rate of profit to recover is one indicator of the lack of a new boom.

The result is a relative sluggishness of the economy. But the sluggishness has continually been papered over by an ever-growing mountain of debt. For instance, reduced corporate taxes have boosted the after-tax rate of profit relative to the pre-tax rate, but this boost has been paid for by $2.5 trillion of additional public debt. Almost all of the remaining increase in the government’s indebtedness is used to cover lost revenue resulting from reduced individual income taxes. These tax reductions have propped up consumer spending and asset prices artificially. Similarly, easy-credit conditions have led to inflated home prices and stock prices, and this has allowed consumers and homeowners to borrow more and save less. Americans saved about 10% of their after-tax income through the mid-1980s, but the saving rate then fell consistently, bottoming out at 0.6% in the 2005–2007 period.

Thus, in the period since the crisis of the mid–1970s, there have been recurrent upturns that have rested upon debt expansion. For that reason, they have been relatively short-lived and unsustainable. And the excessive run-up of debt has resulted in recurrent crises, such as the savings and loan crisis of the early 1990s, the East Asian crisis that spread to Russia and Latin America toward the end of the decade, the collapse of the dot-com stock market boom shortly thereafter, and now the biggest crisis of all, brought on by the busting of housing market bubble.

Policymakers are responding to this crisis with more of the same––much, much more. The U.S. government is borrowing a phenomenal amount of money, for TARP, Obama’s stimulus package, the new PPIP (Son of TARP) bailout of the banks, and so forth. If these measures succeed––and that is still far from a sure thing––full-scale destruction of capital will continue to be averted. But if my analysis is correct, the consequences of success will be continuing relative stagnation and more debt crises down the road, not a sustainable boom. To repeat, unless sufficient capital is destroyed, profitability cannot return to a level great enough to usher in a boom. And given the huge increase in debt that the U.S. government is now taking on, the next debt crisis could be much worse than the current one. It is therefore not unlikely that the next wave of panic that strikes the financial markets will be even more severe than the current one, and have more serious consequences.

But what about the notion that the crisis could have been averted by regulation, and that the next crisis can be averted by regulation? For decades, and until very recently, we heard a lot about how “free-market” capitalism is supposedly more successful than regulated capitalism. Now we’re hearing a lot about regulated capitalism as the new solution.

But consider the savings and loan crisis of two decades ago. Thousands of S&Ls collapsed; the government eventually had to spend hundreds of billions of dollars to repay depositors. This crisis was a failure precisely of regulated capitalism. The S&Ls were very heavily regulated; both the interest rates that they paid on deposits and the rates they charged for mortgage loans were fixed by the government. The S&Ls were known as a 3-6-3 industry: bring in funds by paying 3% on deposits, lend them out at 6%, and be on the golf course by 3 in the afternoon. Very boring, but very safe and stable.

But one thing that Keynesian policies and regulations didn’t regulate, and which they weren’t able to prevent, was the spiraling-upward inflation of the mid- and late-1970s. When inflation took off, the 6% they were getting on mortgage loans didn’t come close to the rate of inflation, which averaged 9.4% from 1974 through 1981. So in “real,” or inflation-adjusted, terms, the S&Ls were losing money hand over fist. Also, the measly 3% interest that S&Ls were allowed to offer depositors was even further below the rate of inflation, so in “real” terms, depositors were losing tons of money by keeping their deposits in the S&Ls. But this latter situation led to the rapid growth of an unregulated alternative: money market mutual funds, which were paying interest rates that more than made up for inflation. Depositors were very happy to have this alternative to the regulated S&Ls. They fled the S&Ls and put their money in the money market mutual funds.

Now Congress eventually lifted the ceiling on the rates that S&Ls could offer depositors, and the ceiling on the rates they could charge for their loans. But the S&Ls were still losing massive amounts of money on the mortgages they had made in the 1950s and 1960s, which were still bringing in 6% interest. The only way they could stay afloat was to make new loans that were riskier than home mortgage loans and which therefore paid higher interest. So Congress eventually undid a Depression-era law which stipulated that the S&Ls were to make home mortgage loans only. The S&Ls began to make very risky real estate and business loans in order to make up for their losses on old loans and cover their costs of borrowing depositors’ funds. A lot of these loans never paid off, and in the end the industry essentially collapsed.

The basic problem with the notion that regulated capitalism is somehow better than free-market capitalism is the simple fact that, in the end, capitalism can’t be regulated.

P.C. Vey, The New Yorker, March 9, 2009

This was acknowledged recently by Joseph Stiglitz, the Nobel Laureate and former World Bank chief economist. In mid-September, he wrote an article that proposed a whole slew of new regulations and laws. But Stiglitz ended by conceding, “These reforms will not guarantee that we will not have another crisis. The ingenuity of those in the financial markets is impressive. Eventually, they will figure out how to circumvent whatever regulations are imposed.” I think this is exactly right. [Stiglitz, “How to prevent the next Wall Street crisis,” CNN.com, September 17, 2008]

Stiglitz did go on to say, “But these reforms will make another crisis of this kind less likely, and, should it occur, make it less severe than it otherwise would be.” [ibid.] That doesn’t make sense, however. If the financial markets will eventually circumvent whatever regulations are imposed, then, once they do, the next financial crisis will be just as likely and just as severe as it would have been otherwise. The best that can be said for new laws and regulations is that they can delay the next crisis, while the markets are still finding ways to circumvent the regulators. And a delay of the crisis means more artificial expansion through excessive borrowing in the meantime, so that the contraction will be more severe when the bubble does finally burst.

Footnotes:

(1) If prices equaled values, then the rate of profit could be expressed as a ratio of variables measured in terms of labor-time rather than as a ratio of variables measured in terms of money. So let S stand for surplus labor, i.e., surplus value in labor-time terms; let L stand for living labor (or employment, a close approximation); and let C stand for capital advanced in terms of labor-time). In the long run, S/C, which is the rate of profit measured in terms of labor-time, tends toward the incremental, or long-run, rate: . Now if the relationship between profit and wages were constant, then S/L, surplus-labor per worker, would be constant. Under this assumption, . My estimates of the long-run labor rate of profit are estimates of this ratio. In a paper I intend to complete within the next few weeks, the long-run rate of profit and its relationship to the actual labor-time and money rates of profit will be discussed in more detail.

As leftists we’ve all had the experience of being told “Hey man, that’s just the way things are.” In the middle of some brilliant analysis of how lame Obama is, or how much the prison industrial complex sucks someone says to us “Hey man that’s just the way things are.” Is this not the essence of any dominant ideology? The point of a dominant ideology is the idea that the present is eternal and unchangeable- that the existing institutions, power structures and injustices are as natural as making babies, that any attempt to critique them or change them is futile. [Though ideologues may try to dress up the message with fancy theories of Pareto Optimality, or fancy algebra, the message is still the same: "Hey man, that's just the way things are."]

In order to do this ideology has to paint the present as something static and unchanging. The feudal landlord had the catholic church which imbued the class relations of society with an eternal christian mysticism. Today we have mainstream economics which projects its own categories backwards and forwards in time to create the illusion that there is nothing unique about modern capitalism and that there are no alternatives to the present.

There is a great, unfinished task before us- not just of how to understand this crisis, but how to understand capitalist crisis in general; and then, specifically to understand the future of capitalism, the openings that will arise for radical breaks from the present order, and the sort of new social orders that might emerge. This task of understanding capitalism also must be a radical critique of dominant ideology- bourgeois ideology. This is why Karl Marx subtitled Kapital “A Critique of Political Economy”. He was very clear that alternative ideas develop in relation to hegemonic ideas. When we aren’t clear about how our ideas relate to dominant ideology we run the risk of allowing bourgeois ideas to subtly influence our own thinking. And I think this is why a lot of leftist takes on the current crisis fall short of being truly radical- that they are not fully conscious of the master narrative and its influence on their ideas.

How does ideology paint the present as eternal? It does this by misusing the process of abstraction. It must abstract away from its description of the present anything which is historically specific, leaving only those vague categories that transcend time.

For instance, take the modern, neoclassical definition of capital which basically says “Capital is stuff that you use to make more stuff.” Now it is true that we can observe throughout human history the phenomenon of people using (stuff) tools to increase the productivity of their labor. According to this vague bourgeois definition there is no real distinction between the bows and arrows wielded by the Iroquois Nation and a Ford Motor plant. And so this definition passes the test of ideology: it makes capital seem universal, timeless, natural and stable. And it does this by abstracting away all historically specific production relations.

By such a definition there is really nothing in capital that could cause a capitalist crisis. How can there be a crisis between a man and his tool? And this is why bourgeois economics must always paint crisis as something external to the system: famine, drought, or maybe malevolent manipulations of the market by governments or unions. But rarely do we hear anyone dare suggest that capital itself might be causing the crisis. (Even some self-proclaimed Marxists are hesitant on this point.) Such an explanation would suggest that there was something historically unique about capital. And after all, what could go wrong between a man and his tool?

The problem is that in a capitalist society those tools are not the property of the people who wield them. The means of production are privately owned by the capitalist class. Class relations are basic to the way production is organized. We might also note that work is a social process mediated through wage labor, not just a relation between individuals and tools. But now we are talking about people in groups, something bourgeois economics avoids at all costs.

Bourgeois economics treats society atomistically in a souped-up version of supply and demand: demand is the product of isolated individuals interacting with commodities; supply is the product of isolated individuals relating to tools. And because people have always wanted stuff, and because there has always been a limited amount of stuff on the planet this is considered all we need to know to understand the economic universe. Mainstream economics substitute some eloquent algebra for what should be the fundamental question: what determines demand and supply? Demand is a function of one’s income from working and socially conditioned preferences from a consumer-driven culture. Supply is determined by the amount of labor apportioned to various tasks and the productivity of this labor. So we see how quickly the image of the atomistic individual falls apart and is replaced by a vast mode of social regulation all regulated by the class relations of a labor process. The picture of the individual, atomistic consumer/producer can only be sustained by abstracting away all mention of these social relations.

This is Marx’s starting point in Kapital: this world of individuals interacting with commodities conceals a deeper world of social relations. By ignoring these relations ideology paints a picture of an eternal world of people interacting with objects in perfect equilibrium. All other factors are considered an external interference. [When a union organizes for better wages, this is not seen as a a direct result of the antagonisms of private ownership of property, but instead as something external to the picture which interferes. When the state intervenes to open markets, or protect capital from itself (like it is currently doing) this is not seen as an inherent reality of a crisis-prone capitalism, but as an external interference.]

Let’s take a look at an actual society with no internal crisis: the primitive hunter-gatherer society. Here work was a collective effort with little or no differentiation of activity. [This undifferentiated form of social labor was probably the simplest of economic systems.] It was immune to internal crisis because, as a large undifferentiated whole, there were no different internal parts to go awry. Crisis then was purely external- drought, famine, earthquake.

The productivity of capitalism is such that we rarely have to worry about an external threat causing a crisis. Hurricane Katrina was horrible but it didn’t make global stock markets tank. In our ability to store up enough social surplus to survive against these external shocks the crisis has been internalized. Now crisis is a problem with the internal mechanisms by which social labor and its surplus is apportioned.

In a capitalist society social labor is wage labor. The ability to work is bought and sold in the market as a commodity as are the products of that labor. Those commodities have value to the extent that they are part of the social labor process. It is in studying this value that we can begin to understand the way capitalism works.

The goal of the capitalist is to amass value, measured in money, for the sake of amassing value. The capitalist wakes up in the morning with money and at the end of the day has accumulated more money. And he doesn’t need to perform any labor at all in order to do this, nor does he care what kind of or how many commodities he has produced. The only question for the capitalist is “Tomorrow what will I do with all this money?” And the answer is always “Try to turn it into more money.”

Thus the total amount of value in society is expanding, by some estimates an average of 3% a year. This is growth for the sake of growth, regardless of the social consequences. Here is where the absurdity of the conspiracy theory becomes clear. The basic idea of a conspiracy theory is: “There is such an amazing coincidence of messed up stuff in the world. This can’t be an accident. There must be some evil will behind it all.” But the conspiracy theorist misses the point. The motor of society, growth- blind, inanimate capital accumulation- doesn’t happen for a reason. There is no will behind it. It’s growth purely for the sake of growth.

But how far is bourgeois economics from the conspiracy theorist? Surely, this is what was most fascinating about the Ron Paul phenomenon: how Ron Paul fused the libertarian and conspiracy causes. If we take libertarianism to be the basic ideological distillation of modern economics isn’t it revealing how close the bourgeois theories of crisis coincide with the conspiratorial notion of an evil, outside force destroying the fabric of society- governments, the FED, jews, aliens. Neither can see that capitalist crisis is indistinguishable from capitalism itself.

When we ask if crisis is internal to capital we are asking if there is a limit to this growth. Clearly capital can only grow at the expense of the laborer. We, the laborers, are the active agents in a vast field of capital comprised of the products of past labor- machines, tools, raw materials, partially finished commodities. Marx called this ratio of past labor to living labor, of machines to man, the “organic composition of capital” and he observed that over time the composition of capital becomes more and more dominated by machines- all intended to improve the productivity of labor. But just because more widgets roll off the conveyor belt doesn’t mean that more value is being produced.

You may know those beautiful Diego Rivera murals in Detroit- his homage to the American industrial worker. In the murals there is a busyness of motion, of swirling gears and conveyor belts, the clanging and rumbling of great industrial machinery. And in the middle of it all, their bodies falling in to rhythm with the machines, are the the muscular forms of the American proletariat. Here is a brilliant illustration of several of Marx’s key insights about capital. In its explosive growth, capital flows through more and more of our reality until everything around us takes on the rhythm of accumulation. In the acceleration of turnover time, the construction and reconstruction of physical space, the gyrations of the stock market and the interest rate, we are always in the presence of the thumping rhythm of “the machine” that is capital. But we are the solitary living ingredient in the equation. As our bodies fall in with the rhythm of the conveyor belt we breath life into the machine.

The bodies in Rivera’s mural are totally dependent on capital for their survival and capital is totally dependent on the exploitation of those bodies for its survival. Yet despite their mutual dependence the two sides are antagonistic. What happens if we perform that careless abstraction of the bourgeoise economist- if we wave our magic wands and make one of the two elements disappear?

If we were to make capital disappear the wage laborer would cease to exist. Yet, human beings would still exist and they would still labor. In fact humans have labored without capital before and hopefully they may again one day. Thus the self-negativity of the worker is that (s)he can say “no” to being a wage laborer. This is what gives a union power- it’s ability to say a collective “no” to capital. This is also why labor creates value in the first place- the ability to say no is the essence of a social contract. The ultimate “no”, the ultimate self-negativity of labor is revolution. This is when we transcend wage labor.

If the human species were raptured this very minute, imagine the world we would leave behind: Diego Rivera’s mural falls silent, the still machines rusting in dark factories; empty schools and prisons, money lying in dark vaults, oil lying still in its barrels- a dead, motionless world. Capital is nothing without the laborer. Thus the self-negativity of capital is that to the extent that it eliminates labor it eliminates itself.

If we were to paint a dozen more machines into Rivera’s mural, the physical output might double. Perhaps we might erase the workers altogether and replace them with machines. What could be better for capital? A machine increases physical output and frees capital of its reliance on labor. But while this may create short-term competitive profits for the individual capitalist it comes at a high price. The less workers we have in our mural, the less value we produce. The more we spend on machines the higher our costs. This is why efficiency is the self-negating part of capital: efficiency destroys the very thing which creates value in the first place.

This may seem intuitively puzzling. If we erased all the workers from Rivera’s mural, wouldn’t cars still be produced? Wouldn’t people still buy them? Wouldn’t profit still be made? This is precisely the argument of those who maintain that profit is physically determined- that an increase in efficiency/productivity must mean more profits. But this is counter to the tenants of value theory: that only labor can produce value and that to the extent that capital accumulates at the sake of labor it is self-negating.

The debate over these rival concepts of productivity, capital and value is crucial. It is important not to dismiss this debate as mere scholasticism. When the bourgeois economist looks at those great murals of Diego Rivera’s he sees only people using stuff to make more stuff, existing in static equilibrium, besieged on all sides by hostile external forces. From the perspective of value theory the roaring machines conceal a social relation which pervades our reality and is contradictory at its core. Those “hostile external forces” are caught up in the gravitational field of capital and become internal to capital. Capital subsumes money, the state, culture and physical space and leaves its mark on all of them forcing them to express its contradictions.

Bourgeois economics may project its categories back and forth in time to create the illusion of a timeless capitalism in equilibrium. But in times of crisis the veil is torn. In a crisis it becomes clear that all things are in flux, that nothing is certain, that social systems don’t grow on trees- that they must be reproduced. We see motion and change all around us. When capital can’t reproduce itself, anything can happen. A crisis is a horrible time for people, but it’s also a great time for radical theory.

Sunday, April 26, 2009

Iceland's interim centre-left government has won a resounding victory in early parliamentary elections, preliminary results show.

With more than 80% of the vote counted, the coalition secured 34 seats in the 63-member parliament - its first ever parliamentary majority.Iceland has been one of the countries most dramatically affected by the global economic crisis.

The centre-right cabinet resigned in January amid mass street protests.The Social Democratic Alliance and the Left Green Movement formed a coalition caretaker government in February, under Prime Minister Johanna Sigurdardottir.

We lost this time but we will win again later Bjarni Benediktsson Independence Party leaderMs Sigurdardottir said if the results of Saturday's poll were correct it would be "historic".

"This is the first time that leftist parties will hold a majority. I hope this will be the result," she said.

Ms Sigurdardottir told supporters the nation was "settling the score with the neoliberalism" and with the conservative Independence Party who "have been in power for much too long".

"The people are calling for a change of ethics. That is why they have voted for us," she said.

The Independence party, who was expected to secure 16 seats, conceded defeat.Its leader Bjarni Benediktsson said it was clear that his party had lost the trust of voters.

"We lost this time but we will win again later," he said.

EU debate

The economic crisis led to widespread public anger The small North Atlantic nation has a population of only 300,000. But it had to take a $10bn (£6.8bn) rescue package, led by the International Monetary Fund, after its banking sector imploded late last year.

The next government will face many challenges, centred around the economy, the BBC's Nicholas Walton says.

It needs rebuilding, with financial services no longer at its core. Unemployment and the government's ruined finances also need attention, our correspondent says.There is also the question of whether or not to apply to join the European Union.

In the past, Icelanders felt that they were better off outside the EU.But the financial crisis has changed opinions, our correspondent says. Now, many see EU membership or adopting the Euro as Iceland's currency, as part of the solution to the country's problems.

Pro-EU Ms Sigurdardottir said if the country applied immediately for membership it could begin using the Euro "within four years".

Economist Gunnar Tómasson was born in Iceland but is currently living in Maryland,USA.After studies at Manchester University and Harvard he was employed for a long time by the International Monetary Fund.

He's a member of an international group of economists called "Gang8". The group emphasizes what they call "Creditary Economics". Gunnar Tómasson explains:

It is a fundamental mistake to view money as an undifferentiated unity. Money comprises credit used for both productive and non-productive purposes. That is, credit extended by the credit system to finance production, on the one hand, and the vast majority of credit extended in recent years for financial speculation, on the other hand.

Financial speculation doesn't produce real output, and the failure to distinguish between productive credit and what may be called parasitic credit - or credit that doesn't give rise to or facilitate productive employment - represents the single most important flaw in both mainstream monetary economics and the monetarist approach.

1. The financial crisis we're experiencing around the world right now has not come as a surprise to you. Why is that?

I have always looked at economics as a means of understanding developments in real-world economies. This is what attracted me to economics while still in high school in Iceland in the late 1950s. Later, after undergraduate work at Manchester University and graduate work at Harvard University , I joined the staff of the International Monetary Fund in 1966. During the next ten years, I worked on the economies of post-Sukarno Indonesia , and Cambodia and South Viet-Nam under war conditions, including service as resident IMF representative for five years in these countries between 1968 and 1975.

In 1976, I began work on a Ph.D. thesis at Harvard planning to transform my practical experience into useful theoretical work. But I soon realized that mainstream monetary theory was irrelevant for most of the financial policy issues with which I was familiar. Therefore, I discarded my initial thesis topic and turned my attention to what I felt certain was some still-to-be- identified flaw in Paul Samuelson's 1942 Harvard Ph.D. thesis, his so-called 'Foundations of Economic Analysis'.

I soon discovered the flaw - it resided in Samuelson's use of a certain conceptual scheme from 19th century Newtonian mechanics, the so-called general equilibrium model. When properly construed, this model is logically inadmissible in theoretical economics. Or, as Keynes wrote to a colleague in the 1930s, all general equilibrium economic models are "little better than nonsense". I wrote a letter to Samuelson, explaining the flaw. He replied that while there are few expert in both physics and economics, he was confident that any such would not agree that I had found an error in his work. In my own case, no expertise in physics was required while in that of Alan Greenspan, developments in real-world financial markets in 2007 drove home the presence of a fatal flaw in mainstream monetary theory. Or as Greenspan recently advised a U.S. congressional committee in this respect, "The whole intellectual edifice collapsed in the summer of [2007]."

That may have been so for Greenspan himself, but in December 1996 I advised his fellow Federal Reserve Governor Laurence Meyer as follows: "It is fair surmise that [Fed and IMF] macro-economic forecasting models predicated on mainstream monetary thought, which have detected no signs of a global crisis during the rapid rise in the ratio of paper wealth to real output during the past quarter century, are once again setting policy-makers up for a nasty "surprise"." This key ratio reached a tipping point in 2007, collapsing the pseudo-intellectual edifice which has informed the monetary policy views of the Federal Reserve and the IMF since the demise of the Bretton Woods system in the early 1970s.

2. You have called today's monetary system "systematic anarchy". What do you mean by that?

The phrase I used was "systemic anarchy" by which I mean that today's world monetary system has operated free of any internationally agreed rules or regulations since the early 1970s.

3. For years people have been fed the "truth" that the market is always right, that the market "demands" this and that, and that economic forces are pure mathematics, reliable as clockwork. Are those ideas dead now, and how will the economists of the future look at our beliefs of the last decades?

The brief answer is Yes - in fact, they were dead on arrival in 'Foundations of Economic Analysis' where Samuelson presented them in such inscrutable language that his Harvard professors must have ok'd them without knowing what they were doing.

For example, Samuelson asserted that "[A]ny sector of economic theory which cannot be cast into the mold of [a general equilibrium] system must be regarded with suspicion as suffering from haziness." If that were true, then it would be doubly true of any sector of economic theory which is actually cast into such a mold because money has no place in a market economy viewed as a system in general equilibrium.

Later, this fact was reflected in the mainstream notion that money does not matter - a truly absurd idea which vanished from mainstream orthodoxy after becoming a public embarrassment. Yet, it seems to be reappearing as the unspoken premise of the trillion dollar money creation by the Federal Reserve System which his economic advisors are recommending to President Barack Obama.

As for the clockwork aspect, it came into the picture through what Samuelson called "the Correspondence Principle between comparative statics and dynamics" and heralded as a key for arriving at "operationally meaningful theorems" (none of which has ever seen the light of day). Alas, there are simple technical reasons why the Correspondence Principle is nonsense. If that were not so, the late James Tobin, the foremost mainstream monetary scholar, should have been able to fit an economy's income and capital accounts within a unitary conceptual framework. After what may have been a quarter century's attempt to do so, Tobin apparently recognized that it cannot be done.

And how will the economists of the future look at our beliefs in the last decades? Briefly, I think they will marvel at their intellectual vacuity.

4. We are seeing how governments around the world, especially the US , are pumping huge amounts of money into the system in order to, as they say, help the patient recover. Will this work?

In my view, the patient is the structure of monetary and economic arrangements at both national and international levels. Thus, the medicine needed for the patient to recover is likely to be complex both in design and execution before sustainable recovery is attained.

5. So are the doctors willing and able to use the needed medicine, or will they jumpstart the heart and send the patient home with a jar of powerful painkillers?

The doctors have yet to come to terms with the causes of the illness. They assume it was not caused by the diet which the patient was fed by mainstream academics and the IMF over the years, and are now testing the hypothesis that more of the same will make the patient feel better. For the time being, therefore, the recommended cure, especially here in the United States but also in Europe , is for central banks to administer massive amounts of credit to the patient. This may bring temporary relief but it does not address the problem which got the patient sick in the first place: mainstream orthodoxy and the financial policy prescriptions of the socalled Washington Consensus.

6. Last summer people where shocked to learn that USA had a debt of more than 7 trillion dollars, which has increased since then, dramatically - how long can the world's only superpower stick it out? Is this a modern version of the fairy tale "the emperor's new clothes"?

After the collapse of the Bretton Woods system in the early 1970s, the United States has enjoyed the dubious privilege of a seemingly unlimited overdraft on its account with the rest of the world. This must now change one way or another.

7. But in your opinon, is it realistic to assume that the US will be able to repay its debt without seriously compromising basic social services?

It is clear that the United States cannot repay its debts. I think Adam Smith made the point in ‘Wealth of Nations' that no sovereign state has ever repaid its debts. Instead, states have resolved their debt problems through monetary inflation which erodes the burden of debts designated in their currencies. And inflation is the likely result of the massive money creation which is now being undertaken by the Obama administration.

8. There have been warnings of a future hyperinflation. Do you think that may happen?

Well, this is a very speculative issue. There are so many unknowns. We just don't know all relevant parameters of the world economy on which to base predictions in this respect. My guess is that world monetary arrangements will continue to unravel and that global economic conditions will not improve any time soon.

9. You have said that for a real change to occur everything must go to hell in a handbasket. Otherwise the experts set to reconstruct the system will come up with the same ideas. Can the system be salvaged?

No, the system cannot be salvaged. But established financial and economic arrangements generate powerful vested interests which will resist fundamental changes which threaten their privileged status. Mainstream orthodoxy would certainly not be the first ideology which vested interests will defend to the bitter end.

10. So how would you define "the bitter end"?

I don't want to put that thought into words but it will be ... very, very messy.

11. What do you think will happen in the next few years? Is there something to hope for?

There is much to hope for once the world community draws appropriate lessons from its ongoing financial and economic trials and tribulations. I have long been of the view that the International Monetary Fund can and must become a forum where the nations of the world join forces and cooperate in the task of reconstructing the international monetary system. There is much work to be done before the essential elements of a future system can be specified, but clearly the U.S. dollar era is coming to an end.

12. So what is coming instead? A new global currency?

In my view that would be the ideal solution. For the past forty years we have had such a global currency in embryonic form in the IMF's special drawing rights. At the planning stage for what became the IMF, John Maynard Keynes envisaged an organization where individual member countries would have access to agreed overdraft facilities. Thus, their economic and monetary policies would be tailored to suit the means available including, if necessary, overdrafts from the IMF. Such overdrafts would be substantively different from those which the US has been using to finance its external transactions in that they would be mutually agreed between all IMF members.In short, I envisage the International Monetary Fund as an ideal forum for a collaborative effort by its members to reconstruct future world monetary arrangements, and I consider an appropriate international currency administered by the world community through the IMF to be the only workable means of restoring the world economy to monetary health.

13. The Aaland islands are an autonomous part of Finland and unfortunately the fall decrease of the economy has cut our contribution by about 10%. Do you have any opinions or ideas of how microstates should manage their economy in times like these?These are technical issues which my home country Iceland must address urgently in the period ahead. I do not know much about the economy of the Aaland islands , but I would expect that they face some of the same problems. Open lines of communication between them might therefore be in the interest of both countries.

14. As more and more people are losing their jobs, and see their funds and holding reach new lows the anger builds up... and there's this collective hunch that was is being done to energize the economy right now isn't in the best interest of the average Joe, but for a rich elite. How would you comment on that?

I must say that I agree, because the anger is certainly justified. But there is no question that those who give advice to policy makers, for example President Obama's economic team, provide what they view as sound policy advice. If it proves wrong-headed, then that is because they were taught, and have worked for decades with, nonsense economic ideas dressed up in mathematics and econometrics. Misguided education leaves its mark on mainstream policy advisers because orthodox economics is ... nonsense.

Saturday, April 18, 2009

The international economic crisis is having a devastating impact on eastern European countries. Poland and the Czech Republic, whose economies until recently had been considered stable, are both being hit by mounting unemployment. Although the economic upturn over the last decade was achieved mainly at the expense of the working class, the government is moving to impose the cost of the current economic crisis completely onto the shoulders of the population.

As in the whole of Eastern Europe, one of Poland's most significant problems is the virtual halting of investment and credit flows—the basis for the economic growth of the recent period—from Western countries. In 2008 Poland was receiving credit amounting to 140 billion zloty ($38 billion). According to some estimates credit will not exceed 40 billion zloty ($11 billion) in 2009. This catastrophe is primarily a consequence of the financial crisis, but it also stems from a particularly Polish "sub-prime crisis".

In recent years, rising real estate prices fuelled a boom in the property market and induced more and more householders to obtain credit by taking out mortgages on their homes. Working people used this to offset their worsening social conditions, while western European banks and their branches in Poland made huge profits from the sale of debt. Western companies, controlling the bulk of Polish retailing, were also able to cash in on increased spending power, resulting from the wide availability of credit.

The Polish mortgage bubble burst with the onset of the international financial crisis. Real estate values have fallen dramatically. Numerous building programmes have been abandoned and experts expect real estate prices to drop by as much as another 20 percent. Countless workers will lose their homes even as they remain in debt for the rest of their lives.

Particularly hard-hit will be those private citizens or firms that have borrowed money in foreign currencies. This applies to 25 percent of all current debt in Poland. Most of the mortgages, 60 percent, were contracted in Swiss francs. Due to the extremely weak zloty, loan repayment rates increased by 12 percent in just a few weeks.

Numerous Western banks, first and foremost in Austria, have already had to write off billions of euros. Hardly any institute is now prepared to extend credit to Poland, even on extremely favourable terms for the lender.

In recent months the government has attempted to counter the credit crisis by significantly reducing interest rates. But this has only worsened the situation and contributed to sharp losses in the value of the zloty, which has fallen from 3.6 to 4.7 zloty to the euro since last October—the same rate reached five years ago.

Lack of credit and investment, together with the falling demand for commodities in the Eurozone, has led to a severe weakening of economic performance. In January, industrial output declined 14.9 percent. Production in the automobile industry fell 34 percent, compared to the previous year.

The official unemployment rate has risen from 9.5 to 10.5 percent. The government forecasts a further increase to at least 12.5 percent by the end of this year. This figure is a gross underestimation, since it is expected that some 100,000 of the 2 million Poles working abroad will be returning home to seek jobs, on account of the economic crisis.

In February the government corrected its growth forecast for 2009 from 3.7 to 1.7 percent. In 2007 it had been 6.5 percent. In the past 12 months, the Polish stock index WIG20 lost more than half its value, falling to 1,365 points.

The rapidity and extent of the collapse is bound up with the social and economic relations that emerged as capitalism was restored to Poland over the last two decades. Closely cooperating with European Union (EU) institutions, a narrow social layer of former Stalinist functionaries and nouveau riche carved up the Polish economy in the name of rationalisation and squandered state property in the course of the privatisation of formally state-owned enterprises. Deprived of any real economic foundations, Poland was left wholly dependent on foreign credit and investment. The country's trade deficit ran to €9.6 billion in 2007.

In the last 20 years, Poland's ruling elite has striven to attract the greatest possible number of investors to the county. It competed relentlessly against its European neighbours to secure the most attractive conditions for investment—corporate taxes were abolished, labour laws dismantled, wages cut, social and democratic rights curtailed. All this led to flagrant social inequality, with misery and poverty on the one hand and utterly perverse levels of personal fortunes on the other. According to a study by the Organisation for Economic Cooperation and Development, every fourth child in Poland lived in poverty in 2007.

The extent of the current flight of foreign capital from Poland reveals the character of the country's economic growth in recent years. It was based almost exclusively on direct investment from abroad and exploited principally by investors who failed to develop the Polish economy in any substantial way.

The government is incapable of combating the crisis. Prime Minister Donald Tusk, of the ultra free market Citizens Platform (PO), is hoping to stabilize the floundering zloty by securing Poland's speedy entry into the European currency union. He has announced that official negotiations with the European Central Bank will take place this month and hopes to be able to introduce the euro into Poland in 2012. However, a precondition for entering is that the value of the zloty does not fluctuate by more than 15 percent in the two years prior to the proposed entry into the currency union. At the same time, the Eurozone itself is currently proving to be far from stable.

After the government managed to partially stabilize the zloty by purchasing euros from European structural stimulus funds, the Polish central bank immediately reduced the key interest rate again last Wednesday, this time from 25 basis points to 4.0 percent, thereby risking further collapse of the zloty. The intention was to kick-start the flow of credit.

In line with its customary practice, the PO government's chief response was to intensify its efforts to offer Poland as the most attractive and lucrative destination for direct foreign investment and to achieve this by doing away with social rights, slashing wages and reducing business taxes.

In January, the government passed a bill authorising a €25 billion bailout package for the banks. Some €10 billion of this was to serve as security on loans made among the banks. The measure also included a reduction in taxation on business energy consumption and import costs. In order to avoid putting Poland's entry into the euro currency union at risk, the government announced the package without applying for loans, but rather by resolving to pay for it through budgetary cuts. In view of dwindling treasury resources, this constitutes a massive assault on what remains of the country's welfare system.

At the beginning of last month, the cabinet decided to cut 19.7 billion zloty (about €4.2 billion), which came in large measure from education and social security. The government also moved to liberalise labour laws, clearing the way for the introduction of short-time work and to carry out the privatisation of remaining state-owned enterprises. In a time of crisis, this only means selling them off at prices far below their true value.

These measures will exacerbate rather than solve the fundamental problems of Polish capitalism and lead to massive confrontations between the government and the working class. The government is working closely with the trade unions to prepare for these confrontations. The president and the prime minister, together with employee delegates and trade unionists, met at a so-called "social round-table" on February 25 to discuss the most cunning ways in which the working class was to be saddled with the burden of the crisis.

The trade union bureaucrats are just as corrupt and reactionary as the government. Instead of uniting Europe's workers in this time of crisis, they stir up chauvinism and nationalism. According to the Gazeta newspaper, Jan Guz, leader of Poland's second biggest trade union association (OPZZ), has called for a ban on the employment of non-EU workers in Poland. He said that, in difficult economic times, it was time for White Russians and Ukrainians to leave Poland.

The trade unions are resorting to such chauvinist appeals in an increasingly desperate effort to prevent a struggle by workers against the government and big business. On February 5, 3,000 steel workers from the Stalowa Wola mill in south Poland protested against the destruction of their jobs. Driven to despair, they hurled stones at the police, set fire to tyres and broke through barriers. Thirty years after the explosive struggles of the working class that gave rise to Solidarity—a mass movement, which was ultimately betrayed by its pro-capitalist leadership—a social storm is once again brewing in Poland.

Poland’s decision to become the second country after Mexico to seek a standby credit line at the International Monetary Fund (IMF) is an insurance policy that should stabilise the zloty on the path towards the euro, officials said on Wednesday.

On Tuesday, Poland said it would apply to the IMF for $20.5 billion in a flexible credit line, part of a facility created by the IMF in March to give well-run emerging-market economies access to money they can either tap immediately or keep as a guarantee in case conditions worsen.

Following are details of the main emergency loan programmes initiated by the IMF.

* POLAND: The announcement that Poland would apply for $20.5 billion in a flexible credit line from the IMF helped the Polish zloty which jumped 2.1 percent against the euro.

Economists said the new credit line did not carry the black mark associated with IMF assistance in earlier crises and should help Poland in the long run.

* BELARUS: $2.46 billion - January: Belarus has already received the first $788 million tranche and the rest is to be released over the next 14 months.

* EL SALVADOR: $800 million - January: IMF said the country did not face immediate needs and would not draw on the funds.

* GEORGIA: $750 million standby loan - Sept. 2008. IMF said on March 24 it would disburse a $186.6 million loan tranche to Georgia under a three-year programme.

* HUNGARY: The IMF, the EU and World Bank agreed a $25.1 billion economic rescue package last November in the biggest loan for an emerging market economy since the crisis began.

* ICELAND: $2.1 billion - Nov. 2008. The IMF deal was complemented by more than $3 billion in loans from Nordic countries, Russia and Poland as well as close to $5 billion or more by Britain, the Netherlands and Germany, making the whole package worth about $10 billion.

* KENYA: Requested in March an IMF loan of up to $100 million to cushion its currency and help counter a food crisis.

* LATVIA: Latvia agreed to a 7.5 billion euro rescue package in December last year, which included an IMF share of 1.68 billion euro. The package also included financing from the EU, Nordic countries, the Czech Republic, Poland, Estonia and the World Bank.

* MALAWI: $77.1 million - Dec. 2008. To help Malawi reduce the impact of high fuel and fertiliser costs.

* MEXICO: Mexico requested a $47 billion credit line from the IMF on April 1, becoming the first major Latin American country to seek an IMF cushion against the economic crisis.

n Mexico has no plans to use the credit line for now, but would tap a $30 billion swap line with the U.S. Federal Reserve.

* PAKISTAN: Pakistan received on April 2 a second tranche worth $848 million of an IMF loan. The IMF approved a $7.6 billion loan in Nov. 2008 to avert a balance of payments crisis and to prevent the government from defaulting on its debt obligations. It got a first tranche of $3.1 billion that month.

* ROMANIA: Romania secured a 20 billion euro aid package from the IMF and the European Union on March 25. The aid package includes 12.9 billion euros of IMF money and 5 billion euros from the EU as well as funds from the World Bank and the European Bank for Reconstruction and Development.

* SERBIA: The IMF is due to approve in May, a 3.0 billion euro 27-month loan programme to replace a $520 million stand-by loan agreed in January.

* TURKEY: Turkey and the IMF have agreed in principle on the conditions of a new loan deal worth up to $45 billion to help the country weather the global crisis, newpapers reported on April 10.

* UKRAINE: $16.4 billion - Nov. 2008: The IMF has suspended release of a second tranche, worth about $1.84 billion, in a dispute over the size of the budget deficit and implementation of reforms. An IMF mission has been holding talks in Kiev for the past week to eliminate differences and restore the flow of credits. Ukraine had already received the first $4.5 billion tranche.

* ZAMBIA: The IMF said on March 4 that Zambia could receive an additional $100 million to $150 million in balance of payments help as the country struggles with the effects of falling copper prices and the global credit crisis. reuters

Almost everyone took the meeting of the G-20 in London on April 2 too seriously. Pundits and critics have been analyzing it as if it had been designed to accomplish some change in policies by the states which participated. The fact is that everyone who went knew in advance that nothing of any significance would change as a result of the meeting, and that the few minor changes that were adopted could easily have been arranged without the meeting.

The point of the meeting - for the United States, for France and Germany, for China - was to show their internal publics that they were "doing something" about the calamitous world economic situation when in fact they were doing nothing that would in any significant way save the sinking ship.

The meeting was perhaps most important for President Obama. He went to demonstrate three things: that he was personally popular around the world; that he would present himself in a radically different diplomatic style from that of George W. Bush; that the two together would make a difference.

Obama certainly demonstrated the first two. He was acclaimed by the crowds everywhere - in London, Paris, and Strasbourg, in Germany, Prague, and Turkey, as well as by U.S. soldiers in Iraq. So was Michelle Obama. And he certainly employed a different diplomatic style. His interlocutors all said he took them seriously, listened to them attentively, admitted U.S. past errors and limitations, and seemed open to compromise solutions of diplomatic disputes - nothing of which they might have accused George W. Bush.

But did this make any difference in achieving U.S. diplomatic objectives? It is hard to see in what way. The debate between, on the one hand, the U.S. approach to reigniting the world-economy (more "stimulus"), an approach supported by Great Britain and Japan and, on the other hand, the Franco-German approach (more international "regulation" of financial institutions) was in no way resolved. Whatever the merits of the two arguments, both sides stuck to their guns, and the communiqué simply papered over the differences.

It is true that the G-20 agreed to put together a package of 1.1 trillion dollars to be given to the International Monetary Fund (IMF) to issue so-called Special Drawing Rights (SDRs) as part of a "global plan for recovery on an unprecedented scale." But as many commentators have pointed out, the scale of the effort is far less than is implied. First of all, part of this is not new money. Secondly, this is financing and not necessarily spending. Thirdly, 60% of the SDRs will go to the United States, Europe, and China, who do not need them. And fourthly, 1.1 trillion isn't all that much, when placed beside the 5 trillion already being provided in the fiscal stimulus plans around the globe.

Everyone came out against protectionism, and proposed to do things about it. But there were no enforceable measures adopted. In addition, there are three different kinds of protectionism in question. The first is protecting one's own industries, something which virtually all G-20 members are already doing and most probably will continue to do. The second is regulating hedge funds and rating agencies. The Chinese cheer this on, while the United States and western Europe are hesitant. The third is regulating tax havens. The Europeans are pushing for this, the Chinese are very cool on the idea, and the United States is somewhere in-between. Nothing changed at London.

The French and the Germans seemed to use the London meeting more to demonstrate that the geopolitical commitments they refused to make for Bush they would continue to refuse to make for Obama. The German newspaper, Der Spiegel, was harsh in its judgment. It said the cause of the financial disaster is that George W. Bush had been a "poppy farmer" who had "flooded the entire world [with cheap dollars],...creating sham growth and causing a speculative bubble...." Worse still, "the change in government in Washington has not brought a return to self-restraint and solidity. On the contrary, it has led to further abandon." Its conclusion: "German Chancellor Angela Merkel is right. The West may very well be giving itself a fatal overdose."

In the geopolitical arena, the Franco-German approach to Afghanistan is unchanged - verbal support for U.S. objectives but no more troops. Would they receive prisoners released from Guantanamo? Germany continues to say absolutely not. France magnanimously agreed to receive one - yes, one.

Obama gave a major speech in Prague outlining a call for nuclear disarmament - presumably a big change from the Bush position. The French conservative newspaper, Le Figaro, reports that the diplomatic cell in Sarkozy's inner circle took a very "abrasive" view of the speech. Just public relations, they said, masking the fact that the negotiations of the United States with Russia on this question were getting nowhere. Furthermore, France was not about to take moral lectures from the Americans. So much for Obama's new diplomatic style appeasing the West Europeans.

Elsewhere, it didn't seem to work too much better with the East-Central Europeans, where the outgoing conservative Prime Minister Mirek Topolanek of the Czech Republic denounced Obama's stimulus proposals as "a way to hell." Obama's speech to the Turkish parliament did get him great applause from all factions (except the proto-fascist right) for its concrete and modulated approach to Turkish questions. But observers noted that the language on Middle Eastern questions was both traditional and vague.

What China seemed to want from the G-20 meeting was for it to occur. China wanted to be included in the inner circle of the world's decision-makers. Holding a G-20 meeting displayed this new reality. When the G-20 decided to meet again, it thereby confirmed China's place. Will the G-8 ever meet again? That said, China showed its reserve about the actual decisions in many ways. It offered a derisory amount to the new IMF package. After all, it got no guarantees that there would be a real reform of IMF governance, which might accord an appropriate role to China.

What we can say in summary is that the principal actors strutted on the world scene. Did they ever intend to do something that was more than that? Probably not. The world economic downturn continues to wend its way, as though the G-20 meeting never occurred.

by Immanuel Wallerstein

[Copyright by Immanuel Wallerstein, distributed by Agence Global. For rights and permissions, including translations and posting to non-commercial sites, and contact: rights@agenceglobal.com, 1.336.686.9002 or 1.336.286.6606. Permission is granted to download, forward electronically, or e-mail to others, provided the essay remains intact and the copyright note is displayed. To contact author, write: immanuel.wallerstein@yale.edu.

Friday, April 17, 2009

We, the International Coordinating Committee and the entirety of the International League of Peoples’ Struggle (ILPS), convey militant greetings of anti-imperialist solidarity to ILPS member-organization BAYAN-USA, to its leadership, its member-organizations and all the delegates to its Third Congress.

We congratulate all of you for your accumulated and current political and organizational accomplishments in the service of the Filipino communities in the USA and the entire Filipino people who are struggling for national liberation and democracy against US imperialism and the exploiting classes of big compradors and landlords in the Philippines.

We take this opportunity to express best wishes to the Filipino women who are participating in this congress and are all set to hold tomorrow the founding assembly of Gabriela-USA. This consolidation of women’s organizations is a further strengthening of the BAYAN-USA and the national democratic movement of Filipinos in the US.

My assignment is to present to you the international situation. Within the time allotted, I can give you some salient points. We can further discuss these in the open forum.

Global Financial and Economic Crisis

As the reality shows, the dogma of the “free market” is a big lie of monopoly capitalism. The US-instigated policy of “neoliberal globalization” has unravelled. It has not at all solved the problem of the chronic tendency of monopoly capitalism to stagnate and go into recurrent and ever worsening cycles of boom and bust. It has led to the worst financial and economic crisis since the Great Depression.

Even if called a recession by some, the current crisis has already reached the depth, duration and direction of a depression, far beyond the definition of a recession as a fall of the GDP in two consecutive quarters. The financial markets have drastically fallen and continue to plunge further despite the trillions of dollars already poured out as bailout for the giant investment and commercial banks and other financial institutions since 2007. The real economy has deteriorated rapidly as a consequence of the financial collapse.

The crisis of overproduction and that of capital overaccumulation in the hands of the monopoly bourgeoisie, especially the finance oligarchy, are wreaking havoc on the lives of the people. In the tens of millions, the people in the US who belong to the working class and middle class have lost their jobs due to plant closures and retrenchment; their homes due to the mortgage meltdown and mass layoffs; their pension funds and savings due to the series of bubbles and investment scams; and their social benefits which have in the first place been reduced and rendered inadequate over the decades.

The current grave crisis has been three decades in the making and cannot be solved in the short or medium term. It will run for a much longer period of time. It comes from the accumulation and extreme aggravation of the fundamental problems characteristic of monopoly capitalism in a series of worsening crises since the adoption of the policy of “neoliberal globalization”.

The US monopoly bourgeoisie has adopted this policy on the notion that the phenomenon of stagflation of the 1970s was due to rising wage levels and government social spending and not due to such problems as the inherent tendency of monopoly capitalism to overproduce and stagnate; the economic recovery of war-ravaged Europe and Japan; US market concessions to anti-communist allies; and the demand pull inflation generated by heavy spending on military production, overseas deployment of US military forces and wars of aggression in Korea and Indochina.

The US policymakers have negated the New Deal of Roosevelt, Keynesianism and even the Samuelson notion of mixing state intervention and free enterprise. They have upheld the notion that inflation is prevented and economic growth is promoted by pushing down wage levels, cutting back on government social spending and letting the monopoly bourgeoisie accumulate more capital and make bigger profits. The job of the federal authorities is supposedly to simply manipulate the interest rates and the money supply and leave the market to “self-regulation”.

The policy of “neoliberal globalization” involves trade and investment liberalization; privatization of public assets; deregulation of financial markets and lifting of social safeguards regarding the exploitation of the workers, women, children and the environment; and the denationalization of the underdeveloped economies. In any case of serious crisis, the job of federal authorities is supposedly to simply helicopter the money and to pour it on the problem. There is supposed to be no problem that cannot be solved by adjusting the interest rate and expanding the money supply and credit.

But ultimately there is a limit to debt financing . Beyond that limit is the grave financial crisis that has burst out in the US and spread to the rest of the world like a plague. The debts of the US government, the financial and nonfinancial corporations and the households have reached unsustainable or unrepayable levels and are causing the financial and economic system to implode.

The US national debt has become overly large and unsustainable because of the mounting interest payments for the US securities in the hands of foreign creditors; because of the ever growing trade deficits arising from the outsourcing of consumer manufactures in cheap labor countries and the scheme to press down wage levels within the US; and because of the budgetary deficits arising from the growth of the parasitic bureaucracy and military expenditures for weapons development and production, global deployment of US military forces and the wars of aggression in the Balkans, Iraq and Afghanistan.

The giant financial and nonfinancial corporations have connived in piling up US corporate debt to the most unbearable levels. They have been responsible for the financialization of the US economy and the overaccumulation of finance capital in the hands of a few. They engage in the unbridled creation of money, credit and derivatives, the wanton issuance of corporate bonds, the overvaluation of the assets of the monopoly bourgeoisie, the making of financial bubbles and manipulation of the stock and housing markets to rob the working class and middle class of their savings.In addition to being subjected to the massive replacement of regular jobs with part time jobs and the lowering of wage and income levels, the US households have been victimized by various forms of debt financing.

They are bound to loans for housing, cars, student tuition and consumption in general through the credit card. The worst scam ever inflicted systematically on the majority of US households is in connection with the housing bubble. They were inveigled to go into mortgage contracts at teaser rates and then into high consumption upon the temporary rise of housing values from 2002 to 2005. This scam has been far more devastating to US households than the high tech bubble of 1995 to 2000 when 40 per cent of them bought into the stock market. At the moment, the US households have savings close to zero and the pension funds in 401-K have been ravaged.

Depending on practically the same bureaucrats who are agents of Wall Street, the Bush regime and the current Obama regime have moved on the same track of bailing out first of all the giant banks with public money supposedly to deal with the bad loans and thaw out the credit freeze. The banks have used the money only to pump their assets but have not resumed lending in any big way mainly because the producer firms of any size are not borrowing to produce more in a situation of glut relative to dwindled demand. The Big 3 in car production have received public money as bailout. But they have proceeded anyway to lay off workers and reduce production after requiring the unions to accept lower wages and less benefits.

The Obama regime has hyped as bailout for the working class trifling amounts in relation to the actual needs and in comparison to the trillions of dollars already delivered to the big banks and other financial institutions since 2007. Such bailout is sham because it comes too late and too little and is actually for the benefit of the private corporations. There are no adequate and effective relief measures for the millions of people who have lost their jobs, homes, savings and social benefits.

There is actually no program of job creation despite much touting about projects in infrastructure, green energy, expanded health care and other social services to be undertaken within the budgetary frame of various departments of government, supposedly to stimulate demand and production. The limited funds for the projects are slated to be funnelled to and filtered by the profit-making and labor cost-cutting private corporations. There is yet nothing like the emergency jobs program of the Work Projects Administration of the 1930s which, by the way, could not really overcome the Great Depression.

The persistent neoliberal bias of the US monopoly bourgeoisie, especially the financial oligarchy and the Democratic and Republican duopoly, prevents economic recovery in the US within a few years’ time. There is no comprehensive plan to revive production and re-employ the millions of workers who have been laid off. As the US economy slides further into the Greater Depression, the world capitalist system follows. Nevertheless, there would be further adverse consequences for other countries were the US to revive its manufacturing capacity for export and cut down its imports from China, Japan, Europe and others in order to overcome its huge trade deficit and foreign debt.

Sharpening of Major Contradictions in the World

Within the US, the monopoly bourgeoisie has successfully carried out a fierce class struggle to exploit and oppress the working class, together with the rest of the people. It has babbled about being against state intervention in the economy. But in fact it has used the state to impose the policy of “neoliberal globalization” on the economy and society and to press down wage levels and cut back on social spending.It has used legislation, court decisions and the law-enforcement agencies to attack the trade union and democratic rights of the working class. It has also used the mass media, schools and other persuasive means to discredit, undermine and weaken the working class movement. It has exploited and oppressed the working class in bringing about the current grave financial and economic crisis. Now, it is raising the level of exploitation and oppression as it invokes the crisis to take more and more public money and blocks the public sector from adopting and implementing a comprehensive economic plan to revive production and generate stable jobs.

The contradiction between the US monopoly bourgeoisie and the working class is sharpening as the crisis deepens and worsens. Subjected to rapidly rising levels of unemployment, homelessness and various forms of social deprivation, the working class is impelled to fight back, assert its democratic rights, reject the inhuman system of capitalism and aim for socialism.

Social discontent is already sweeping the US. It is bound to burst out in the form of concerted mass actions to demand jobs and real solutions to the crisis and to protest the outpouring of public money for the bailout of the monopoly banks and firms and for continuing the US wars of aggression and various forms of military intervention. The monopoly bourgeoisie is bound to repress the mass movement and to try deceiving the people about the roots of the crisis with the slogans of chauvinism, racism, anti-terrorism and warmongering. But this time conditions are favorable not only for advancing the progressive mass movement but also for building the party that aims for socialism.

In the other imperialist countries, engulfed by the crisis that has spread from its US epicenter, the contradiction between the monopoly bourgeoisie and the working class has sharpened even more dramatically than in the US. The ruling parties and coalitions that have closely followed the US-instigated policy of “neoliberal globalization” are now the target of widespread mass actions, including nationwide workers’ strikes and protest actions by the people in general. The rising sentiment of the people has turned favorable to parties that denounce monopoly capitalism and call for socialism. Karl Marx is gaining popularity.

The US is thoroughly discredited as the instigator of a failed global economic policy, as an extremely overborrowing country, as a purveyor of financial toxins and as an imperialist superpower that is militarily arrogant and aggressive but running short of financial resources. The IMF has also become ineffective as a US tool because it is practically bankrupt and has to beg for funds from several sources other than the US. The conspicuous financial and economic weakening of the US hegemon has emboldened other imperialist powers like Russia, France and Germany, to openly criticize its longstanding dominance and to demand multilateral relations on an equal footing in matters of the economy, finance, trade and security.

Among the imperialist powers, the trend of multipolarization is visibly growing. Contradictions are in fact sharpening and generating a struggle for a redivision of the world. Several other imperialist powers resent the propensity of the US to engage in overborrowing, to have a stranglehold over sources of fossil fuel and other strategic materials, markets and fields of investments and to monopolize the spoils of so-called free trade and wars of aggression.

To try solving the financial and economic crisis in their respective countries, the imperialist powers are inclined to pursue the strategy of using temporary jobs and relief measures to stimulate demand, absorb the existing inventory of goods and ultimately to revive and expand national production that generates stable jobs. The trend is thus set for the intensification of inter-imperialist economic competition and political rivalry. It is too difficult or even impossible for the US to wrest back its unquestioned economic and political dominance as either in the period of 1945 to 1975 or the more recent period of “neoliberal globalization”.

Hearing the slogan of Buy America in connection with the US plan to overcome the current crisis, Europe and Japan as well as China, the biggest supplier of cheap consumer manufactures to the US, are worried about the drastic reduction of US imports and have expressed fears about the danger of protectionism. China the top “newly-emergent market” has been hit hard by the bankruptcy and closure of the export-oriented sweatshops and private construction projects. Social unrest there is growing due to the deteriorating economic situation and rampant bureaucratic corruption.

Aside from the drastic fall in demand for its exports, China has expressed its worry about the US in further bloating the bubble in US treasury bonds and ultimately devaluing the US currency and the US treasury bonds in order to promote US exports and cut down the US foreign debt. At the same time, China has reduced its imports faster than its exports have fallen, thus still showing a trade surplus. On the other hand, the US is worried about China’s economic and diplomatic activities that veer away from the US policy in East Asia, Central Asia, Middle East and Africa. In the Asia-Pacific region, the Philippines is very much involved in or affected by the policies and activities of the US, China, Japan, North and South Korea, ASEAN and Australia.

The peoples and nations oppressed by foreign monopoly capitalism and the local reactionaries in the underdeveloped and retrogressive countries of Asia, Africa, Latin America and Eastern Europe suffer most from the economic and social devastation wrought by the current financial and economic crisis. The overwhelming majority of them are dependent on raw material exports. Only a few of them export some consumer semi-manufactures and some basic industrial products.

The demand for all these exports have abruptly fallen. At the same time, the unprecedented global credit crunch makes it difficult for the underdeveloped countries to cover their chronic accounts deficits, import necessities and service their accumulated foreign debt. The imperialist countries are repatriating or barring migrant workers and thus reducing the remittances of such workers to their underdeveloped countries.

The economies of the underdeveloped countries are far more depressed than ever before.

The rate of unemployment is rapidly rising. Incomes of the toiling masses of workers and peasants and the middle social strata are falling. The prices of basic commodities are rising. Social services are deteriorating or dwindling for the working people. The imperialists and the local exploiting classes have become ever more oppressive and exploitative.

In most of the underdeveloped countries, the local rulers have become even more servile to the imperialists and exceeded previous levels of corruption and brutality, as in the case of the US-directed Arroyo regime. In certain countries, however, the patriotic and progressive forces and the broad masses of the people motivate and enable the governments to stand for national independence and general welfare against imperialism and the worst reactionaries.

The broad masses of the people suffer from the terrible crisis and the escalating levels of oppression and exploitation. They are waging various forms of struggle for national liberation and democracy against the imperialists and the local exploiting classes. Protest mass actions demanding national and social liberation are sweeping entire countries and continents. The people are waging the fiercest forms of resistance against aggression and occupation, as in Iraq, Afghanistan and Palestine. Armed national liberation movements are growing in strength and advancing in an ever increasing number of countries. The Maoist parties are exemplary in leading people’s wars and winning victories.

US imperialism is already anticipating the upsurge of people’s resistance on a global scale. Speaking before the US Senate select committee on intelligence last month, the director of national intelligence retired Adm. Dennis Blair warned that the deepening economic crisis posed the greatest danger to the stability and security of the world capitalist system and that it could trigger a return to the “violent extremism” of the 1920s and 1930s. Wall Street has brought about the crisis that is pushing state terrorism and imperialist war as well as inciting the people of the world to wage revolution.

Conclusion: The Filipino People’s Struggle in Global Context

I hope that my brief presentation can help you comprehend not only the international situation as such but also the struggle of the Filipino people for national liberation and democracy in the context of the international situation. The Filipino people in their homeland as well as the Filipino communities in the US and other foreign countries are severely affected by the current financial and economic crisis.We in the ICC of the ILPS call on BAYAN USA to intensify its efforts in arousing, organizing and mobilizing the Filipinos in the US in order to uphold, defend and promote their rights and interests and to support the struggle of the people in the motherland for national liberation and democracy.

We urge you to contribute to the common struggle of the people of the world against imperialism and reaction and advance international solidarity, mutual support and cooperation in fighting for a new and better world of greater freedom, democracy, social justice, all-round development and peace.